LONDON (18 June 2019) – Aon plc (NYSE:AON), a leading global professional services firm providing a broad range of risk, retirement and health solutions, has said that its latest Pension Benefit Design Survey shows that an increasing number of UK defined benefit (DB) schemes have undertaken benefit reviews in the last four years and that closure of schemes has accelerated as a result.
The Aon survey of 317 DB schemes, ranging in size from under £20 million to over £40 billion, revealed that over the last four years,105 schemes had reviewed DB benefits, with 60%of schemes now closed to DB accrual – up from 48% in the last survey in 2014 – and with a further 21% reducing future accrual in some way.
Dave Hughes, Head of Aon's Benefit Design Team said:
“It is maybe no surprise to see an increase in the number of DB schemes closed to accrual – that’s the trend we have seen for a while now, driven by the high costs of providing DB benefits. However, we are now seeing benefit reviews for many DB schemes which were previously put in the 'too difficult box'.
“We believe there are several reasons for this: the demographics of the workforce are changing and many employers have reached a stage where their DC scheme members significantly outnumber those in the DB scheme. It then becomes a far more natural step to make moves towards harmonising future benefits, with the risk of potential business disruption also being lower than it might once have been.
"We often now find trustee boards are more comfortable with the business case for DB closures, with a greater emphasis now on the protection of accrued benefits, rather than on potential future service benefit terms. Indeed, for many schemes, DB closure is often the catalyst for a joint strategy between employers and trustees towards endgame planning for fully securing DB arrangements for the benefit of all scheme members. In practice, this often means closures are followed-up quickly with a programme of member option exercises and investment strategy reviews, ultimately heading towards a full buy-out."
Dave Hughes continued:
“It is also notable that almost half of the reviews in our survey have had union involvement. This is likely to be a key driver for the 59% of benefit reviews in the last four years which have involved some sort of concession to members compared to the initial proposal – up from 35% for benefit reviews before 2014 survey.
“We find many sponsors are now looking to work with experienced partners, to help to pave the way for a positive dialogue with unions regarding the issues faced with ongoing DB provision - and how to find an acceptable solution. Our survey demonstrates the creativity being applied to these concessions varying from enhanced ongoing DC contributions, one-off bonus contributions or cash payments, all the way through to one-on-one support from an IFA.”
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Notes to Editors
Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance.
Aon announced in May 2018 it will retire the business unit brands of Aon Benfield and Aon Risk Solutions, which follows the retirement of the Aon Hewitt business unit brand in 2017. This move was designed to increase the rate of innovation across the firm and make it easier for colleagues to work together to bring the best of Aon to clients. Aon has five specific global solution lines: Commercial Risk Solutions, Reinsurance Solutions, Retirement Solutions, Health Solutions and Data & Analytic Services.
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